CLIMATE CHANGE: SCHWAB OPPOSES POTENTIAL TRADE MEASURES

US Trade Representative Susan Schwab has warned US legislators against introducing border measures in draft climate legislation.

According to Schwab, "trade restrictions run the risk of tit-for-tat retaliation and even an all-out trade war where no one wins and everyone loses." Instead, Schwab has advocated a focus on 'win-win' solutions, such as the liberalisation of trade in climate-friendly goods and services.

US climate legislation moving along

There are two main climate- and energy-related bills are under preparation in the US Senate. Both are based on the 'cap and trade' principle, under which energy-intensive enterprises would be allocated CO2 emission rights. A certain portion of the allowance would be cost-free and another would be auctioned.

The Low-carbon Economy Act sponsored by Senators Bingaman and Specter calls for limiting CO2 emissions to 2006 levels by 2020, while the bill being developed by Senators Lieberman and Warner would require a 10-percent reduction from that level by the same deadline. Both proposals would also allow regulated industries to buy credits through climate-friendly projects in foreign countries, as well as foresee the possibility of requiring US importers of energy-intensive goods to submit allowances in an amount that would compensate for the economic advantage resulting from the products not being subject to emissions-related regulation in their countries of origin.

Representatives Dingell and Boucher are working on a House bill along similar lines. Final legislation is not expected to be passed until well after the current presidiential elections are over.

Schwab cautions against border measures

In a letter sent in early March to Joe Barton, Ranking Member of the US House Committee on Energy and Commerce, Schwab responded to a 31 January 'white paper' on potential climate change legislation produced by this committee.

The white paper, was part of a series aimed at providing guidance to lawmakers in crafting a mandatory, economy-wide climate change programme for the US, had a particular focus on competitiveness concerns and ways to engage developing countries.

As a starting point, the paper noted that Congress was unlikely to adopt legislation committing the US to reduce its greenhouse gas emissions without action by developing countries as well. The paper looked at measures such as border adjustments, performance standards and instruments under a carbon market.

Regarding border measures, Schwab stressed that using import restrictions would amount to putting into place "a blunt and imprecise instrument of fear - rather than one of persuasion - that will take us down a dangerous path and adversely affect U.S. manufacturers, farmers and consumers."

The white paper considered the consistency of potential border measures with the US' obligations under the WTO, highlighting possible concerns - without ruling out the use of the measures despite this fact. Schwab took note of these concerns, adding that any trade-related measures could prompt retaliation by the US' trade partners and that "this scenario could unfold long before any potential disputes were concluded in the WTO." Thus, according to Schwab, "the consequences for global trade could be enormous," and play out rather rapidly.

In addition, at a political level any threats of trade measures could bring acrimony into the climate change negotiations, where a more successful strategy would be to focus on carrots, not sticks, said Schwab.

Clinton, Obama want environment, labour considerations in trade

In related news, the US presidential campaigns of Hillary Clinton and Barak Obama have emphasised the need for enforceable environmental and labour standards in current and any future international trade agreements.

The emphasis in their campaigns has been on the North American Free Trade Agreement (NAFTA), which has hurt some state's economy as businesses have sent manufacturing jobs to countries like Mexico where labour is cheaper. Both candidates have indicated their support for amending NAFTA to include environmental and labour standards.

Trade with China has also been highlighted in the Clinton and Obama campaigns. Clinton and Obama have both stated their commitment to tackling the unfair trade practices of China and the need to make enforcement of trade agreements a top priority in order to protect US interests.

Republican presidential candidate John McCain has criticised Clinton's and Obama's stance saying, "they are sending 'the wrong message to the world' by pledging to renegotiate [NAFTA] to protect American workers," and labelled any major restructuring of NAFTA a "betrayal."

Depending on the outcome of the presidential election outcome in November, Clinton's and Obama's positions may hinder a successful conclusion to the already troubled Doha Round of negotiations (see Bridges Weekly, 5 March 2008, http://www.ictsd.org/weekly/08-03-05/story2.htm).

ICTSD reporting; "WTO Needs New Labour, Environment Rules - Clinton, Obama," Reuters, 3 March 2008; "For Candidates, A Lot of Distance Between Texas and Ohio on NAFTA," Dallas News, 4 March 2008; "Forget NAFTA, Look at What Clinton and Obama Say on China on China Trade," The Nation, 4 March 2008; "Behind Obama's Union Comeback," TIME, 3 March 2008; "McCain Blasts Obama's and Clinton's Attacks on NAFTA," LA Times, 29 February 2008.